Media Policy | Media Research | Media Studies

Post navigation

Economics of multiplexes in India : A study of the PVR group

By: Shivani Sharma

Drawing on a case study of the PVR Plaza and PVR Rivoli located at Connaught Place of New Delhi, Shivani Sharma in this piece helps understand the revenue generation techniques of the multiplex cinema halls of India. Sharma is an alumnus of Centre for Culture, Media & Governance, Jamia Millia Islamia, New Delhi between 2009-2011.

The revenue generation techniques of the cinema halls have been one of the least explored areas of the communication studies. This essay is an attempt to look at the revenue generation strategies of the PVR Group, specifically, two halls, PVR Plaza and PVR Rivoli, located at Connaught Place, New Delhi. The financial year 2008-09, that is in focus here for the purpose of study, was marked as a particularly slow year for the Indian film industry for various reasons.

PVR Plaza and PVR Rivoli, represent the era of multiplexes which started in India with the advent of Priya Village Roadshow, (popularly known as PVR), in the market of cinema exhibition in 1997. A joint venture of Priya Exhibitors Private Limited and Village Roadshow Limited, an Australia based cinema exhibition company, PVR is now one of many corporate players that dominate the market. Before 1997, the single screen halls owned by small businesses and sole proprietors were the only players in the market.

The primary source of revenue for any cinema hall has always been the sale of admission tickets. Advertisement, Food and Beverages, Royalty income and Convenience fee, etc. are other sources of revenue for a cinema. There have been attempts to diversify into other revenue streams to provide more options for out of home entertainment for the audiences. However, this also primarily depends on the sale of tickets because this model would work only when there are more number of people coming to the exhibition spaces to watch the movies. Therefore, the strategy of revenue generation of any cinema exhibition company would in final analysis take into account the number of halls and the audience footfall. To explain further, higher the number of halls, higher will be the company’s earnings and the higher number of people coming into the cinema hall would once again translate into higher revenue for the company. Table 1 illustrates the case in point for PVR.

Table 1: Details of the PVR Group (2005-2009)

Years

Number of halls

Number of screens

Revenue(in million)

Growth rate

Footfall(in million)

Growth ratein footfall

2005-2006

18

75

1074.3

52

8.78

78

2006-2007

21

82

1719.6

60

14.74

68

2007-2008

25

101

2447

42

17.97

22

2008-2009

29

125

2787.1

14

18

7

With the increase in the number of movie halls/screens every year, the footfall has increased tremedously, leading to a fair growth in the revenue per year. However a closer look at the data would show that the percentage rate of growth has decreased both in terms of revenue and footfall which means there is an increase, but at decreasing rate. (see Table 2)

Table 2: Decrease in the Revenue & Footfall of the PVR Group (2005-2009)

Years

Number of screens

Revenue (per screen)(in million)

Number of halls

Footfall (per hall)(in million)

2005-2006

75

14.324

18

0.487

2006-2007

82

20.970

21

0.701

2007-2008

101

24.227

25

0.716

2008-2009

125

22.296

29

0.62

There has been an increase in the number of screens from 2005-2008 and the revenue per screen and footfall per hall has also increased till the year 2007-08, but the same decreased badly in the year 2008-09. This was explained in the Price Water Cooperhouse report[1] which says that this slowdown was due to the economic slowdown and rising development cost.The multiplex industry witnessed delays in new roll outs of screens as majority of their upcoming properties were delayed due to slower construction activity and delay in getting regulatory approvals. The developers too were going slowly on construction activity in the wake of working capital getting dearer and acute shortage of labour. Thus the expansion plans around which the growth story of the multiplex companies were built, had been slowed in the short term.

REVENUE GENERATION TECHNIQUES OF THE PVR GROUP

Technique 1: Segregating the Audiences to Maximize the Revenue

PVR has different categories of cinema halls which cater to different sets of audiences:

PVR Talkies are the low-cost multi-screen cinema. They offer superior ambience and high hygiene standards for viewers in Tier 2 cities. For example, the rate for a morning show in PVR Priya at Delhi is Rs. 75 as it largely caters to a student crowd.

This segregated manner of catering to audiences’ needs has ensured the inclusion of higher number of people as part of the audience.

Technique 2: Revenue Sharing with the Developers

The cinema exhibition company also earns revenue from multiplex properties that it runs under a revenue share arrangement with the developers. The developer is the one who develops and owns the other parts of the multiplex. The revenue from ticket sales at these cinemas is paid in lieu of the rent on the basis of a revenue share with the developer. Multiplex properties at Ghaziabad, Mulund-Mumbai, Lucknow, Ludhiana and Indore are examples of this arrangement. In the case of halls at other locations either the company owns the place or pays regular rent for the place they are operating in.

Technique 3: Convenience fee

Convenience fee is the amount that the customers are charged for booking tickets through means which are largely telecommunications enabled such as internet, mobile etc which helps the audience avoid the hassle of waiting in a queue. Revenues from Convenience fee for the year ended March 2009 increased to Rs.21.7 million from Rs 14.9millionregistering a growth of 46%. It suggests an increase in tickets sales online and allied channels like, Mobile Ticketing etc. This surge can be understood in terms of the growing penetration of facilities like the internet to the public.

Technique 3: Food and Beverages revenue

Revenue from sale of food and beverages is the total amount paid by patrons at in-cinema concession stands for food and beverages and is net of sales tax / value added tax. This revenue source is planned very carefully to increase the number of transactions within the limited time audience have i.e, prior to the start of a film and during intervals. This is done by increasing the options available like providing service at the seat, adequate number of sale counters, attracting customers through offers like meal combos and tying up with well branded franchisees to provide food items not available under PVR’s candy bar model through direct rent or profit share models that yield well in a non-cannibalizing way. This helps to cater to local tastes and preferences in different ways, while keeping the core PVR candy bar model intact.

Techniques 4 & 5: Advertisement and royalty income

Advertisement revenue includes revenue from onscreen advertisements, off-screen advertisements and cinema association. The increase in the number of halls will lead to a rise in the number of eyeballs that the location would guarantee. This in turn would be attractive for the advertisers. A look at the data of years from 2005-2009 also shows that the growth rate had been steadily on the rise till 2008. The year 2008-09 registered a slump in this growth.

Table 3: Advertisement and Royalty Income of the PVR Group (2005-2009)

Years

Number of halls

Income (in million)

Rate of growth

2005-2006

18

106.1

9%

2006-2007

21

196.9

86%

2007-2008

25

293.4

49%

2008-2009

30

382.5

30%

Royalty income is the sum paid by certain suppliers so that PVR agrees not to sell directly competing products. For example, Pepsi pays a huge sum as Royalty Income aka Pouring rights to PVR for not selling any other soft drinks.

Technique 6: Management fee

Management fee includes

• Basic revenue share fee/ management fee for services provided by the company generally to the property developer in relation to the multiplex, which is usually a percentage of turnovers.

Other income earned, include rent from spaces that are leased out to third parties, returns from different investments, etc.

THE CASE OF IPL SCREENINGS IN THE PVR PLAZA AND RIVOLI

Connaught Place, where PVR Plaza and PVR Rivoli are located, sits right in the heart of New Delhi. It is one of the prominent landmarks in the city, especially with the colonial buildings that surround the place. PVR Plaza is located in the inner circle whereas PVR Rivoli is located in the outer circle with a distance of barely 500 meters between the two. Since the two halls are so closely located, it is interesting to observe how they respond to competition with each other and with other cinema halls as well. PVR has rented heritage buildings situated in CP for both the halls where a monthly rent of Rs. 2 million and 1.5 million is paid for Plaza and Rivoli respectively. The pricing of tickets also reflects this difference between the two halls. While the former has a two tiered pricing with a segregation of Rs. 275 and Rs. 225, Rivoli has a three tiered pricing with a segregation of Rs.250, Rs.225 and Rs. 180. As the statistics earlier mentioned, both the halls, in line with the revenue pattern of the PVR Group, earn the maximum through sale of tickets and food and beverages. Also Plaza with its location in the inner circle is more attractive to the advertisers.

It would be useful to understand how PVR responds to competition to get a perspective on the significance of the proximity of the two halls. This was most visible in the case of Indian Premier League [2] (IPL) screenings. According to some internal sources, PVR has entered into an agreement with IPL where they had agreed to screen IPL matches in specific number of halls. Therefore in spite of the low revenue generation from IPL it had to be screened. In 2007-08 the IPL screenings were held in Plaza but in the year 2008-09 this was shifted to Rivoli to offset the losses that were caused due to the fall in the footfall in the hall. Therefore in this case, the two halls Plaza and Rivoli functioned in tandem where the IPL screenings were conducted in the latter while the regular movie screenings were held in the former.

Such a revenue strategy to offset its losses was not available to Odeon Big Cinemas, also situated in Connaught Place. A joint venture of the Odeon Theatre (opened in 1939) and Anil Dhirubhai Ambani Group (ADAG)-owned the Big Cinemas, Odeon Big Cinemas is the nearest competitor multiplex of the PVR Group in Connaught Place. It had to continue its IPL screenings despite the losses it incurred as it too like the PVR Group had an agreement with the IPL to show its matches.